Carillion fallout gathers pace – ‘end the outsourcing racket’


The public sector should provide public services, says UK Labour leader Jeremy Corbyn.

“We will rewrite the rules to give the public back control of their services,” he has said, in the wake of the high-profile failure of services and construction company Carillion, which has billions of pounds in government contracts.

“Theresa May has exposed the failure of the outsource-first ideology when she said the government was ‘a customer’ not ‘the manager’ of Carillion. If these are public contracts we should be the manager and not have a middleman like Carillion creaming off the profits.”

Mr Corbyn’s comments have been echoed by many others. Carillion’s demise has highlighted the problems that can occur when private companies, which operate on a for-profit basis, are contracted to supply services to government entities.

This is done because the private sector is supposed to be more cost-effective, but when the private contractor goes under because of mismanagement or bad luck, any savings disappear when the taxpayer is left to clean up the mess.

The critics are out in force in the UK – and it seems they have much to criticise:

  • The UK Government is now liable for Carillion’s pension shortfall, which may be as much as £1 billion.
  • The Government continued to award large contracts to Carillion well after the warnings about its continued viability, at a time many private sector customers were bailing out.
  • The senior UK Government official overseeing Carillion’s public sector contracts, retired in August 2017. She was not replaced until November. It was while no-one was in the position that Carillion’s share price tumbled after repeated profit downgrades.
  • The UK Federation of Small Businesses complained to Carillion in July 2017 about slow payments to contractors – six months before the company went bust.
  • HSBC, one of the main lenders to Carillion, bet against the company as long ago as 2015 with ‘synthetic securitisation’ derivatives which essentially sold the company’s debt to it. Many hedge funds had been shorting Carillion stock even before the firm issued profit warnings.
  • Former CEO Richard Howson continued to be paid his £660,000 salary after he resigned. He was to have been paid until October 2018. The UK Institute of Directors has criticised the company’s corporate governance, including ‘clawback’ provisions on senior executive bonuses which ensured they would be paid even if performance targets were not met.
  • Six executives from consultancy PwC have been appointed to the Government board liquidating the company, after the same company had a major contract with the Governmnet advising on contingency plans should the company go under. Other consultancies have estimated that PwC could earn as much as £50 million from the liquidation process.

AS thousands lose their jobs and subcontractors go unpaid, the fallout will continue, adding to Theresa May’s Government’s many woes.

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